Potential homebuyers typically must borrow at least a portion of the cost of the home from lenders such as banks, credit unions, mortgage companies, savings and loan institutions, state and local housing finance agencies, and so on, to obtain the funds necessary to purchase or refinance their homes using the home as security for the loan. These lenders offer mortgage products to potential home buyers and, after the borrower applies for a loan, underwrite the borrower's loan application. The lenders who make (originate and fund) mortgage loans directly to home buyers comprise the “primary mortgage market.”
When a mortgage is made in the primary mortgage market, the lender can: (i) hold the loan as an investment in its portfolio, or (ii) sell the loan. The market for the sale and purchase of mortgages is referred to as “secondary mortgage market”. The secondary mortgage market includes sellers, typically lenders, and purchasers, e.g., pension funds, insurance companies, securities dealers, financial institutions and various other investors. Lenders often sell the loans they have issued, typically retaining a small percentage of the income stream from the loan, in order to procure a new supply of funds to make more home mortgage loans, thereby assuring home buyers a continual supply of mortgage credit.
However, most purchasers in the secondary mortgage market have requirements regarding the type of loan that they are willing to purchase. Current systems for communicating the types of loans a purchaser is willing to purchase are cumbersome and unclear. The plethora of loan types as well as the variability in borrowers and lenders themselves leads to a vast array of credit risks for each type of loan and a complex set of criteria for determining whether a loan is eligible for sale to a purchaser.